U.S. housing outlook sends dollar to record low against euro

BERLIN — The dollar hit record lows against the euro today as expectations for a U.S. housing turnaround remained distant.

The euro reached as high as $1.4813 in European trading before settling back to $1.4785.

The U.S. Commerce Department reported that the construction of new homes and apartments rose by 3 percent in October. That was the first increase after three months of declines and the biggest advance since a 6 percent rise last February — and higher than the forecast drop of 1.3 percent.

However, most experts believe that housing is likely to remain weak through much of 2008 as builders struggle with historically high levels of unsold homes and rising mortgage defaults, which are dumping even more homes back on glutted markets. The positive news was not viewed as a signal of a turnaround.

Applications for building permits — seen as a good sign of future activity — fell by 6.6 percent, their fifth straight monthly decline, the Commerce Department reported.

The euro and the pound have been climbing steadily against the dollar since August amid fears for the health of the U.S. economy, stoked by the subprime credit crisis. The euro hit its previous all-time high of $1.4752 on Nov. 9.

The euro, which bought $1.4667 late Monday in New York, also found support when Germany's producer price index came in above expectations, which "underlined the scope for a rate hike from the [European Central Bank] as soon as next week," said James Hughes, an analyst at CMC Markets.

Part of the dollar's recent weakness has stemmed from speculation the U.S. Federal Reserve will continue cutting interest rates even as the European Central Bank holds, or even increases, its own.

Although lower interest rates can jump-start an economy, they can also weaken a currency as investors transfer funds to countries where they can earn higher returns.

"There's little around to support the dollar right now," Hughes said.

The British pound also rose to $2.0651 from $2.0497, while the dollar was up to 110.10 Japanese yen from 109.85 yen.